You may think that it’s a crazy idea to get a personal bank loan when you are abroad. A lot of people assume that it is almost impossible to borrow if you are a foreigner – even some expats think that. It is true that it can be hard to do, particularly for someone who is an expat. It is not impossible though, despite the ideas that get perpetuated.
Providing loans is something that banks do a lot of. Across the world, loans are quite a similar product. There are asset based loans for things such as purchasing a car. There are personal loans, and there are business loans. Banks exist to make money, and one way that they make money is to sell loans.
Foreign banks operate under laws that are often rather different to the laws that you may be used to at home. The laws vary from country to country, and there are even some state to state differences in the USA. Sometimes, this works out well for you as a borrower because it means you get charged less interest. Often, though, it leads to lower lending limits or stricter terms which can be less than ideal for you if you need flexible lending.
As an expat or someone who is considering becoming an expat, it is important that you understand the laws that apply to the country that you are moving to. There are some general tips that we can give you, but any online advice is exactly that – general.
Taking Out a Loan
Mortgages are a special case and the rules associated with them are complex. Commercial loans are outside of the scope of a short guide such as this too. Here, we are concentrating on personal loans.
In most countries, the basic rout of application for a loan should be something that you are already familiar with from your home country. Banks do not usually discriminate against expatriates, so your application should be easy.
The bank is going to look at a few specific details:
- The amount of the loan
- The intended purpose of the loan
- Your savings
- Your income
- Some banks may consider how much money you hold in your home country.
- Any assets that they can hold against the value of the loan
These are all things that you should be used to if you have applied for a loan in your home country. Banks, in any part of the world, will not look well upon loans that are irresponsible, too large compared to your assets and income, or that don’t make sense. They will consider your credit rating too.
The Things that Differ When Borrowing Abroad
Expats sometimes get caught out with a few differences – some things that you can expect to have to deal with include:
- The way that the bank will look at you. The bank is going to pay close attention to you and the relationship that they have with you. Some (but not all) countries treat anything beyond a very small loan application as being something that needs a meeting and a relationship. The box ticking and ‘computer says yes/no’ stance that UK banks take is not pervasive in every other country.
- If you are looking for a loan for commercial purposes then you should apply for one. Do not try to use a personal loan for a commercial reason, because a lot of banks will not react well to that. They have seen too many expats try to do exactly that and have it end badly for them so it is likely that your idea would be dismissed out of hand.
- You will need to show that you’re able to pay a good chunk into the purchase by yourself. If you want to build a new garage, for example, then the bank might lend 70% of the value of the project, but you’ll have to show that you have some money to put down on it. As an expat you might be expected to have more capital to put down than a resident.
- Some banks are unwilling to lend to expatriates who they do not have an existing banking relationship with. It’s a good idea to open a bank account and use it responsibly before you start trying to borrow. Once you have a longstanding relationship, then you can start looking to borrow.
- Overseas banks are likely to have some strict rules on the amount that they will lend, and while relationships matter for a yes or a no, you’re unlikely the be able to negotiate on things like upper loan amounts.
- Debt consolidation is common in the UK and the USA but it isn’t an idea that a lot of other countries have adopted. There are many parts of the world that see the idea of ‘borrowing money to get out of debt’ as a strange and impractical notion.
- You may get a fast ‘no’ if your loan request is blatantly unqualified, but you can’t expect a fast yes from a lot of the foreign banks. They may need to go through several authorisation levels to clear a loan, so apply in good time and be patient.
Overseas lending shouldn’t differ too much from getting a personal bank loan in your home country, but it is something that you should approach carefully and systematically.